Why J Sainsbury plc, Lonmin Plc And Costain Group PLC Could Hit New Highs In 2016

Roland Head takes a look at the improving outlook for J Sainsbury plc (LON:SBRY), Lonmin Plc (LON:LMI) and Costain Group PLC (LON:COST).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Share prices often rise steadily following upgrades to analysts’ profit forecasts. In today’s article I’ll look at three stocks that could benefit from an improving outlook in 2016.

Sainsbury

Supermarket J Sainsbury (LSE: SBRY) remains unique among the big three listed UK supermarkets.

Unlike its two listed peers, the firm has delivered stable and profitable results that have seen analysts increase their earnings forecasts for the 2015/16 financial year. Sainsbury now trades on a forecast P/E of about 12.5, and offers an above-average forecast yield of 3.9%.

Debt levels remain relatively low, with gearing of less than 20%.  Asset backing is also good. At 275p, Sainsbury’s shares trade at a 10% discount to their last reported tangible net asset value of 305p per share.

Of course, there’s still the question of the Home Retail Group acquisition. I’ve mixed views about this. Home Retail may be one reason why Sainsbury’s shares look relatively cheap.

We should find out more about whether Sainsbury intends to pursue the deal in the face of a higher potential offer from Steinhoff later this week.

But I think Sainsbury is likely to remain a buy.

Lonmin

At first glance, South African platinum miner Lonmin (LSE: LMI) appears to tick all the boxes for a risky investment. Not only is the firm’s profitability uncertain, but its share price has risen by 300% from January’s 52-week low!

Despite this, I’m continuing to hold my shares. I think the outlook could be brighter than it seems.

In its latest update, Lonmin confirmed that it’s on course to achieve guided operating costs of R10,400 per platinum group metal (PGM) ounce for the full year. The firm also reported an average PGM basket price of R10,859 per ounce for October-December 2015.

Since then, the price of platinum has risen by around 5%. The US dollar has also weakened slightly, and the benefits of Lonmin’s restructuring plan should have continued to help reduce the firm’s costs.

I believe that all of these relatively small gains could combine to help Lonmin return to profitability sooner than expected. City forecasts currently indicate a full-year loss in 2016 and 2017.

However, forecasts for 2016 have risen steadily since November. I reckon there could be more to come.

Costain Group

Construction and engineering firm Costain Group (LSE: COST) is beneath the radar of many investors, but I think it has some very attractive qualities. The group’s recent results showed that operating profit rose by 16% to £33.2m last year. The dividend was also increased by 16% to 11p per share, giving a yield of 3.1%.

More than 90% of Costain’s order book is made up of contracts where the client is responsible for reimbursing all costs. This should provide some protection from painful cost overruns.

The group also focuses increasingly on managing complex long-term projects. It’s hoped this will improve profit margins and smooth out cyclical downturns.

Costain’s clients appear happy with the group’s approach to business. More than 90% of Costain’s order backlog is with repeat customers.

City analysts expect earnings per share to rise by 22% in 2016, putting the shares on a forecast P/E of 13.5 and a prospective yield of 3.5%. The group looks well positioned to deliver further steady growth, in my opinion.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head owns shares of Lonmin. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

How I’d aim to earn £16,100 in passive income a year by investing £20k in a Stocks and Shares ISA

Harvey Jones is building a portfolio of high-yielding FTSE 100 dividend stocks that should give him a high and rising…

Read more »

Investing Articles

Down 8% in a month! The BP share price is screaming ‘buy, buy, buy’ at me right now 

When crude oil falls, the BP share price invariably follows. Harvey Jones is wondering whether this is the right point…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

Could the 9.8% M&G dividend yield get even bigger?

Christopher Ruane reckons that, although the M&G dividend yield is already close to a double-digit percentage, it could get better…

Read more »

Investing Articles

How much passive income could I earn by putting £380 a month into a Stocks and Shares ISA?

Christopher Ruane explains how he'd aim to turn a Stocks and Shares ISA into four-figure passive income streams each year.

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

2 passive income stocks I’m buying before an interest rate cut

With the market expecting interest rates to fall in August, time might be running out for investors looking to buy…

Read more »

Investing Articles

If I’d bought Rolls-Royce shares a year ago, here’s what I’d have now

Rolls-Royce shares have been the big FTSE 100 success story of the past 12 months and more. And there's still…

Read more »

Young female analyst working at her desk in the office
Investing Articles

If the Dow’s heading for 60,000 by 2030, can the FTSE 100 index hit 12,000?

Strategist Ed Yardeni predicts a 50% rise for America’s Dow Jones Industrial Average over six years. Can the FTSE 100…

Read more »

Investing Articles

Is the National Grid share price a once-in-a-decade opportunity?

The National Grid share price looks like a bargain. But there’s much more for investors to think about than a…

Read more »